21. The Government's aim in launching NDYP was to
"help young people aged 18-24 who have been unemployed and
claiming job seekers allowance for six months or to find work
and improve their prospects of remaining in sustained employment".[29]
An important part of evaluating New Deal is establishing whether,
and to what extent, it has achieved this goal. The Government's
1997 manifesto target was to help 250,000 young people off benefits
and into work during the lifetime of the Parliament.

22. Unemployment in NDYP's client group reached a
peak in 1993 and has been falling since then, well before the
launch of NDYP. According to the Institute for Fiscal Studies,
there was already "a clear trend of increasing employment
and falling unemployment for 18-24 year-olds since 1994, long
before the introduction of the New Deal" (see Table 1).[30]

Table 1: Youth unemployment (six months
or more), April 1994 to April 2000

DATE

CLAIMANT COUNT UNEMPLOYED

April 1994

368,000

April 1997

177,500

April 1998

119,300

April 2000

59,200

Source: Department for Education and Employment, Ev. p. 57.

23. Initially youth unemployment fell more sharply
than unemployment in other age groups, perhaps partly reflecting
the decline in the proportion of the total population aged between
18 and 24. Between 1996 and 1998, youth unemployment fell at the
same rate as total unemployment. In April 1998 when NDYP was rolled
out nationally, its client group represented eight and half per
cent of the claimant count in Great Britainthat are some
119,000 young people who had been registered unemployed for at
least six months.[31]
Since NDYP was launched in 1998 "youth unemployment has fallen
noticeably more quickly compared to that of other age groups".[32]
Between 1997 and 2000 unemployment in the NDYP client group fell
by 70 per cent; and between 1998, when NDYP was launched, and
2000 by 56 per cent. This compares favourably with the fall in
the overall number of 18 to 24 year olds registered unemployed
and with the fall in claimant unemployed across all age groups
(see Table 2).

Table 2: Trends in unemployment since
1997

FALL 1997-2000

FALL 1998-2000

Fall in claimant unemployed in the NDYP client group

70%

56%

Fall in claimant unemployed in all 18-24 year olds

37%

23%

Fall in claimant unemployed across all age groups

49%

26%

Source: Department for Education and Employment, Ev. p. 57.

24. Since NDYP was introduced it has affected a large
number of people. By the end of November 2000, there had been
568,400 starts on New Deal. Of these, 206,530 have moved into
sustained employment (that is, a job lasting more than 13 weeks)
and a further 62,680 have had at least one period of employment
lasting less than 13 weeks.[33]
In January 2001 the Government announced that it had met its manifesto
target of getting 250,000 young people off benefits and into work.[34]
Unemployment has also fallen in the other New Deal target groups
more quickly than for those ineligible to join the programme (see
table 3).

Table 3: Unemployment in eligible and
ineligible groups, April 1998 to October 2000

APRIL 1998

OCT 2000

DECLINE

ELIGIBLEGROUPS (THOUSANDS)

NDYP client group

120

37

69%

NDLTU client group

195

110

44%

INELIGIBLEGROUPS (THOUSANDS)

18 to 25 year olds unemployed for < 6 months

226

205

9%

Those over 25 unemployed for < 12 months

707

532

25%

Those over 25 unemployed for 12 to 24 months

126

107

15%

Source: Ev. p. 127.

25. One way of estimating the impact of NDYP on youth
unemployment is to compare youth unemployment rates with unemployment
rates in other age groups. In the two years before the introduction
of NDYP, the ratio of youth unemployment to other unemployment
was stable. Riley and Young's analysis shows that, since the introduction
of NDYP, this ratio has fallen steadily. They argue that "if
the ratio of youth to other unemployment had remained stable through
to March 2000, it would have been 30 thousand higher than it actually
was".[35]
A closer examination of youth unemployment rates relative to other
age groups, such as that performed by the National Institute of
Economic and Social Research, suggests that NDYP may not be the
only cause of the decline in youth unemployment since 1998. Table
4 shows estimates of youth unemployment rates compared to other
age groups. Although it shows that youth unemployment has declined
relative to other age groups, it is also clear that the magnitude
of that fall varies depending on which age group youth unemployment
is benchmarked against. As Riley and Young point out, this "illustrates
the uncertainties involved in determining the magnitude of the
NDYP effect".[36]

28. It is widely accepted that in the UK the balance
between long and short-term employment is linked to wage pressure.
Sustained periods of unemployment reduce motivation to search
for work and result in an erosion of skills; thus long-term unemployment
puts less downward pressure on wage rates than short-term unemployment.[42]
One of the purposes of NDYP is to encourage the long-term unemployed
actively to search for work and thus assume behaviour more often
associated with short-term unemployment. NDYP has also reduced
long-term unemployment in comparison with short-term unemployment.[43]
It may therefore reasonably have been expected to increase downward
pressure on wages. Dr Young, however, told the Sub-committee that
he found some evidence that wages were slightly higher
than might be expected but that this was probably a result of
the minimum wage rather than any nefarious effect of NDYP.[44]
Regional analysis suggests that where New Deal is most prevalent,
the downward pressure on wages is greatest.[45]
The National Institute of Economic and Social Research concluded
that "reactivating the long-term unemployed does seem to
be having the effect on wage pressure that you would expect".[46]

29. Riley and Young argue that, largely as result
of the downward pressure on wages but also partly as a result
of job subsidies and the provision of work on the Environmental
Task Force and the Voluntary Sector, NDYP has had a beneficial
impact on the economy as a whole, allowing it to expand by just
under 0.1 per cent each year, equivalent to an increase in Gross
Domestic Production of £500 million in 1998-99. They suggest
that this has resulted in the creation of around 25,000 extra
jobs in the first half of 2000 alone, of which 10,000 were taken
by people outside the NDYP client group.[47]
Under this analysis, the significance of the effects of NDYP on
wage pressure become apparent. We note that the National Institute
of Economic and Social Research is not planning further work in
this area.[48]
We recommend that the Government should monitor closely the
impact of New Deal on wage pressures.

The initial estimate for total expenditure on NDYP
over five years was £3,150 million. The most recent estimate
is £1,480 million, less than half the original expectation.
The Minister told the Sub-committee that the costs had been lower
than the original estimates for two main reasons. First, unemployment
in the NDYP client group had fallen more quickly than had been
expected and secondly, that when the initial costs projections
had been made, it had been expected that 40 per cent of clients
would leave the programme during the Gateway and that 60 per cent
would move onto one of the options. In practice some 60 per cent
of clients to date have left from the Gateway. The Minister also
added that to some extent, the options had cost less to provide
than was originally expected.[50]

31. In 1999, the National Institute of Economic and
Social Research estimated that NDYP was likely to be self-financing.[51]
More recent analysis by the Institute finds that the overall impact
of NDYP on public finances, after adjusting for costs and other
consequences of the programme, such as a reduction in Jobseeker's
Allowance payments and an increase in taxation receipts, concludes
that "for every £5 spent on the programme about £3
comes back" so there is "a 60 per cent return on expenditure".[52]

32. Total annual expenditure on NDYP is expected
to remain fairly constant despite a fall in the number of expected
clients.[53]
The Minister explained that there were two reasons for this: first,
that the intensified Gateway will be more expensive to deliver,
largely because of the introduction of gateway-to-work courses
which are expected to cost around £700 per client and, secondly
because the hardest to help, those with multiple barriers to employment,
were likely to form an increasingly large proportion of NDYP clients.[54]
Mr Lewis, Chief Executive of the Employment Service, added that,
as a consequence, the personal adviser service would be more "richly"
resourced.[55]
We recommend that the Government should monitor closely the
extent to which cost per client increases as NDYP evolves and
those with multiple barriers to employment become an increasingly
large proportion of the total number of NDYP clients.

35. The relatively small proportion of the overall
labour market accounted for by the youth labour market means that
NDYP's substitution effect would be expected to be small. The
National Institute of Economic and Social Research examined the
substitution effect of NDYP in New Deal for Young People: First
Year Analysis of Implications for the Macro-economy in 1999.
It found that there was little evidence of NDYP having any significant
effect on unemployment other than in its client group although
it pointed out that "as more people pass through the NDYP
programme, or if the economic background turns less benign, this
could change".[64]
Although substitution caused by NDYP to date has been mitigated
by the relatively small size of the youth labour market, this
could change if economic conditions worsen and the competition
for jobs increases. We recommend that the Government should
continue to monitor substitution under NDYP closely.

37. The Unemployment Unit and Youth Aid has repeated
expressed its concern at the high level of short-term and insecure
employment.[67]
Mr Paul Convery, the Director of the Unemployment Unit and Youth
Aid, told the Sub-committee that he was "alarmed by the fact
that some 40 per cent of placings into work through New Deal have
not become sustained jobs".[68]
Mr Victor Adebowale, the Chief Executive of Centrepoint, agreed.[69]
Several witnesses argued that the targets set for New Deal were
a contributory factor in the high level of unsustained placements.
For example, the Public and Commercial Services Union explained
that by putting too much emphasis on any job outcome, rather than
on starting clients on the right career path for them, the targets
(in particular Core Performance Measure A[70])
resulted in a higher level of unsustained placements.[71]

38. The Greater Manchester Low Pay Unit argued that
"a constant moving in and out of employment means that young
people will quickly become disillusioned with the programme and
view it as a 'revolving door' rather than an opportunity to secure
a job. Arguably constantly moving in and out of short-term employment
will also demoralise and reduce the confidence of young people
as they question their ability to find secure employment".[72]
We stated our concern over the relatively high level of moves
into unsustained employment when we reported on New Deal: Two
Years On.[73]

39. Mr Leigh Lewis, Chief Executive of the Employment
Service, told the Sub-committee during an earlier inquiry that
he did not believe that sustained employment should be the only
goal for NDYP participants. He told the Sub-committee that "if
you end up at absolutely one end of the spectrum rather than the
other, you are probably defeating your overall objectives".[74]
Similarly the Minister drew the Sub-committee's attention to evidence
that indicates that those young people who undertake a short spell
of employment are more likely to find sustained employment in
the long term.[75]
The Government said that for those "young people whose job
is not sustained, the experience may still transform their confidence,
their ability to work and their prospects of getting another job
with recent work experience to show to their next employers ...
The Government's view is, therefore, that jobs that are not sustained
are still of value to the young person. The point of New Deal
is that it increases a young person's employability".[76]

40. We agree that there is benefit in providing
young people with short-term work experience. Nevertheless, we
remain concerned that the proportion of moves into unsustained
employment remains as high as 40 per cent. As the Minister has
told us on more than one occasion, young people on New Deal are
ambitious and aspirational and that New Deal must be aspirational
for them.[77]
Those aspirations will not be met by a cycle of continual short-term
employment in entry level jobs, registered unemployment and participation
in New Deal.

41. The Minister told us that the Government was
placing "increasing importance on retention and people not
just getting into a job but staying in work".[78]
We note that the Employment Service (ES) is piloting retention
targets in some areas and that job sustainability is now a condition
of payment for some New Deal providers. The Sub-committee have
questioned the use of 13 weeks as the definition of sustained
employment. While we accept that it is standard definition used
by this Government and the last, we have sympathy with those who
argue that 26 weeks would be a better definition. After six months
in employment, new opportunities such as access to training and
eligibility for promotion, are available.[79]
Under the New Deal Innovation Fund 26 weeks is used as the definition
of sustained employment in some pilot programmes. We welcome
the increasing emphasis on helping young people into sustainable
employment. Job retention and career progression should be built
into future measures of achievement for New Deal.

42. Definitive data on the number of NDYP participants
who gain employment and who are still in employment after 26 weeks
are not available, although the Minister estimated that around
75 per cent were still in employment after three months. She also
told the Sub-committee that 80 per cent had not returned to benefits
after 26 weeks.[80]
We recommend that the Government should collect information
on the length of employment retention to inform the development
of policy aimed at increasing employment retention.